On Monday, the U.S. dollar experienced a decline, largely influenced by lower Treasury yields, as traders awaited key economic data to gauge the Federal Reserve’s potential interest rate adjustments. Meanwhile, Bitcoin surged to a more than two-year high amidst substantial flows into cryptocurrency exchange-traded funds.
Despite Friday’s 0.33% increase, the euro maintained its strength, with anticipation building ahead of the European Central Bank’s policy decision scheduled for Thursday. The Japanese yen hovered close to the closely watched threshold of 150 per dollar, as investors assessed the potential timing of the Bank of Japan’s departure from its negative interest rate policy, potentially as soon as this month.
The dollar index, which measures the currency against six major counterparts including the euro and yen, slightly declined by 0.04% to 103.82, nearing the lower end of the 103.43-104.97 range observed over the past month. Weaker manufacturing and construction spending data on Friday led to a 0.26% decline in the index, subsequently contributing to a decrease in Treasury yields. This decline in yields further weighed on the dollar, with the benchmark 10-year yield dropping to 4.178%, marking its lowest level in two weeks.
According to Westpac strategists, there is a growing bias towards testing range support for the dollar index ahead of significant macroeconomic releases this week and Fed Chair Jerome Powell’s annual testimony to Congress. However, they note that markets would likely need a major shift in data to suggest that range support will not present another buying opportunity, indicating the likelihood of the dollar index remaining within its current range.
This week’s agenda includes the release of manufacturing and services ISM readings on Tuesday, with the focus on Friday’s release of monthly payroll figures. The dollar strengthened by 0.2% against the yen, reaching 150.43 yen, as traders analyzed cautious remarks from BOJ Governor Kazuo Ueda, who stated late last week that it was premature to conclude that the central bank’s inflation target was close to being met. This contrasts with hawkish comments from BOJ board member Hajime Takata earlier on the same day, which propelled the yen to a more than two-week high of 149.21 per dollar.
Market participants are deliberating whether the BOJ will terminate its negative interest policy at its March 18-19 meeting or opt to wait until April or later. Meanwhile, the euro remained relatively unchanged at $1.08425, positioned near the upper end of its recent range.
While most economists anticipate the ECB will initiate rate cuts at its June meeting, they are eager for additional insights on the timing from ECB head Christine Lagarde’s upcoming press conference.
Bitcoin was trading approximately 1.5% higher from Sunday at $63,500, having earlier surged to $64,284.75, marking its strongest level since November 2021, the same month it reached its record high of $68,999.99.